Complexity and Crisis in the Financial System
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Complexity and Crisis in the Financial System

Critical Perspectives on the Evolution of American and British Banking

Edited by Matthew Hollow, Folarin Akinbami and Ranald Michie

With contributions from across the disciplines of law, history, finance, and economics, Complexity and Crisis in the Financial System offers a truly interdisciplinary study of the relationship(s) between crises and complexity in the US and UK financial markets. Taken together, the contributions in this volume not only challenge many often taken-for-granted ideas about the nature of financial crises, but also broaden our understanding of the long-term causes (and consequences) of the global financial crisis of 2007–2008.
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Chapter 2: Entrepreneurial failure and economic crisis: a historical perspective

Mark Casson

Abstract

This chapter analyses the major UK economic crises that have occurred since the speculative bubbles of the seventeenth century. Crises are usually considered to be financial, but historical evidence suggests that their origins are often real. Real effects involve too much investment in some sectors, too little investment in others, and often too much investment overall. These mistaken investment decisions originate in flawed judgements made by entrepreneurs acting under the influence of simple and misleading ideas. The financial aspects of a crisis are often the consequences of a real crisis, aggregated by defaults on fixed-interest debt and the consequent dislocation of the banking system. The evidence suggests that major crises often involve excessive investment in specific sectors that were considered at the time to be of great strategic importance. Whilst some crises were caused mainly by failures of government policies, failures of privately funded schemes created the most serious problems.

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